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If People Grasped the Full Cost of Cars, They Might Make Greener Choices

A new paper co-authored by Yale economist Kenneth Gillingham finds that consumers significantly underestimate the total cost of car ownership. If they fully grasped the full costs, the paper reports, they would be likely to switch to cleaner transportation alternatives.

Diego Delso via Wikimedia Commons

A Mercedes-Benz dealership in Munich, Germany

If more consumers understood the total costs of car ownership it could promote a shift to cleaner, lower-emission alternatives, according to a new paper co-authored by an economist at the Yale School of Forestry & Environmental Studies (F&ES).

In a survey of more than 6,000 consumers in Germany, researchers found that people underestimate the total cost of vehicle ownership by €221 ($240) per month on average. Although they correctly estimated their spending on fuel on average, they “severely” underestimated all other major expenditures, including depreciation, repairs, taxes, and insurance. The misjudgment amounts to 52 percent of the actual costs.

“We discuss a set of potential solutions. For example, rather than having a label on new cars only showing the future fuel costs, the label could include the full expected monthly costs of ownership.”

— Kenneth Gillingham

If these consumers were aware of the true costs, the researchers then calculate, it could reduce the number of cars in Germany by as much as 17.6 million, or 37 percent.

“If people underestimate how much it costs to own a car, they are more likely to own cars, rather than use other, cleaner, modes of transportation,” says Kenneth Gillingham, an associate professor of environmental and energy economics at F&ES and corresponding author of the paper. “And because repair costs are higher for conventional gasoline-powered cars, the underestimation could affect the uptake of electric vehicles as well.”

The researchers suggest that these miscalculations can be used as leverage in creating new policies that promote cleaner transportation choices — for instance, car sharing, alternative-fuel vehicles, public transport, biking or walking.

“We show that this can have substantial implications for greenhouse gas emissions, and we discuss a set of potential solutions,” Gillingham says. “For example, rather than having a label on new cars only showing the future fuel costs, the label could include the full expected monthly costs of ownership.”

Private automobiles account for about 11 percent of global carbon emissions, and represent the highest share of the overall transportation sector.

Transportation is one of the most difficult sectors to decarbonize. So Gilingham and his colleagues say that their work points to further research exploring approaches to better inform customers so they can make appropriate decisions, which also has the potential to reduce emissions and other costs of reliance on cars, such as congestion and accidents.

“It is not a substitute for actions such as carbon pricing, but it adds one more tool in the policymaker’s toolkit,” Gillingham adds.

The paper, published in the journal Nature, was co-authored by researchers at RWI — Leibniz Institute for Economic Research in Germany and the University of Mannheim, Germany.